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Managing Your Debt

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Preparation is an effective prophylactic for financial headaches.

Keep accurate records from the start!

The big question after amassing educational debt in medical school is what to do after you leave medical school. It is without question that you are responsible for the debt and that you need to be sure you have a good handle on what you have before you leave medical school. One source where you can get a history or an inventory of your Federal Stafford Loans, Federal Perkins Loans and Federal Graduate PLUS Loans is at www.nslds.ed.gov.

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Income Based Repayment (IBR)

Income-Based Repayment (IBR) is one of several repayment plan options for borrowers of student loans made under the William D. Ford Federal Direct Loan (Direct Loan) Program or the Federal Family Education Loan (FFELSM) Program. If you qualify for IBR, your required monthly payment will be capped at an amount that is intended to be affordable based on your income and family size, and will be less than what you would have to pay under a 10-year Standard Repayment Plan.

In addition to making your monthly loan payments more affordable, the IBR Plan offers other benefits:•If your IBR payment amount does not cover the full amount of interest that accrues on your loans each month, the government will pay any unpaid, accrued interest on your subsidized loans for up to three consecutive years from the date you begin repaying the loans under IBR. (You are responsible for paying the interest that accrues on your unsubsidized loans during this three-year period.)•If you repay under IBR and meet certain other requirements, any remaining loan balance that you owe will be canceled after 25 years.•Payments that you make under IBR count toward the 120 payments that are required for the Direct Loan Public Service Loan Forgiveness (PSLF) Program. [January 5, 2010]

 

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Repayment

Repayment of student loans has taken a different twist with the enactment of the Income Based Repayment (IBR) Plan and the Public Service Loan Forgiveness (PLSF) Program. Both of these congressional programs were voted into law in October 2007. The IBR was implemented on July 1, 2009. The PSLF is expected to be used for the first time in 2018 or later. Both are discussed at www.ibrinfo.org.

A lot of attention has been placed on the PSLF, with the potential opportunity to have significant forgiveness of unpaid loans upon completing 120 qualified payments under IBR and during that time worked in a not-for-profit (501 C 3) setting. There is a great potential for medical residents to take advantage of this opportunity given that they are making an income that allows entry into the IBR in their first year of residency training and are in training in what is considered an education center, which is deemed a not-for-profit setting. With a medical residency training program lasting 3-7 years (not counting Graduate Fellowship training, which is also in a not-for-profit capacity) and 80% of residents going on to likely work in a hospital or health care network that is also not-for-profit, you can understand why PSLF is a real opportunity. Unfortunately, some medical training does not lend well to working in a not-for-profit. For example, not limited to or by any means a comprehensive list, you may find Anesthesiologists, Emergency Medicine, Ophthalmologists, Orthopedic Surgery and Pathologist working in for-profit ventures and may not be able to realize PSLF. Nonetheless, IBR is for everyone.

The following piece may be helpful in understanding PSLF. The following piece may be helpful in understanding IBR.

Loan repayments may seem too far away to even think about. Calculating monthly payments can be a formidable task. However, it is a good idea to estimate what payments will be so that one can budget money accordingly when beginning a residency or practice. To calculate payments over the ten years after medical school, use the conversion factors in the following table. The sample calculation shows how to figure out the monthly payments for three loans with different principal amounts and interest rates.

For other loans that include the Loans to Disadvantaged Students (LDS), Federal Primary Care Loans (PCL) and institutional loans like the Mabel Sledd Cunnison Loan or the Henry Strong Loan, you can access information on these loans at the Indiana University Student Loan Administration (SLA). Their website is www.indiana.edu/~iuloans.

Keeping Records

Educational loans have long-term implications for your financial future. Therefore, special attention must be given to the management of personal and educational debts from the very beginning. Keep accurate records of all debts, including, but not limited to:

  • copies of your promissory notes,
  • loan disclosure statements from your loan servicer,
  • any correspondence from the lender or servicer, and
  • financial aid notifications.

If you have not kept records during the undergraduate years, request from your financial aid office a copy of your financial aid records. Use the information received to begin accurate record keeping. You can also access your records by reviewing your federal loan history through online services like the National Student Loan Data Service (NSLDS) at www.nslds.ed.gov or your loan servicer. At IUPUI, you have access to your records by going onto http://onestart.iu.edu.

Public Service Loan Forgiveness

http://studentaid.ed.gov/students/attachments/siteresources/QA_PSLF.pdf

The Public Service Loan Forgiveness Program begins July 1, 2009, and is intended to encourage individuals to enter and maintain their careers in the Public Service arena. The program offers forgiveness of the outstanding Federal Student Loan balance to borrowers who have made 10 years (120 monthly payments) of qualifying payments. Eligible payments are payments made beginning October 1, 2007.

Eligible loans:

The following loan types are eligible for the Loan Forgiveness:

  • Federal Direct Subsidized/Unsubsidized Stafford Loans
  • Federal Direct Grad Plus Loans
  • Federal Direct Consolidation Loans

Borrowers with loans via the Federal Family Education Loan (FFEL) Program must consolidate* their loans with the Federal Direct Loan Program to qualify for the Public Service Loan Forgiveness Program.

*Note that payments made prior to the consolidation do not count toward the 120 required payments. For more information on the impact of consolidating our loans, visit the Consolidation page. Borrower Eligibility:

The Borrower:

  • Must not be in default on the loans for which forgiveness is requested.
  • Must be employed full-time by a public service organization-
  • While making 120 (10 years) on time payments;
  • Must be employed at a Public Service Organization at the time of application for forgiveness;
  • Must be employed at a Public Service Organization at the time of forgiveness.

Public Service is defined as full-time work in any position, in one of the following areas:

  • Full-time service in AmeriCorps or Peace Corps.
  • Full time employment by a “Public Service Organization” defined as:
    • A federal, state, local, or Tribal government organization, agency, or entity (includes most public schools, colleges and universities);
    • A public child or family service agency;
    • A non-profit organization under section 501(c)(3) of the Internal Revenue Code that is exempt from taxation under section 501(a) of the Internal Revenue Code (includes most not-for-profit private schools, colleges, and universities);
    • A Tribal college or university;
    • A private organization that is not a for-profit business, a labor union, a partisan political organization, or an organization engaged in religious activities (unless the qualifying activities are unrelated to religious instruction, worship services, or any form of proselytizing) and that provides the following public services –
      • Emergency management;
      • Military service;
      • Public safety;
      • Law enforcement;
      • Public interest law services;
      • Early childhood education (including licensed or regulated health care, Head Start, and state-funded pre-kindergarten);
      • Public service for individuals with disabilities and the elderly;
      • Public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health care support occupations);
      • Public education;
      • Public library services; and
      • School library or other school-based services.

Taken from: http://studentaid.ed.gov/students/attachments/siteresources/LoanForgivenessv4.pdf

Borrowers do not have to be employed for 10 consecutive years within Public Service, however; payments made during the non-qualifying employment period will not count toward the 120 required payments for loan forgiveness.

Special Note:

Typically the use of the standard payment plan will allow the borrower to repay the loan in-full before forgiveness would be available. Borrowers wishing to optimize the amount of forgiveness they would be eligible to receive, should consider utilizing a reduced monthly payment plan such as Income Contingent or Income Based repayment. Using a reduced payment amount will ensure that the amount forgiven is optimized.

Additional Information:

For additional information you can view the final regulations for the Public Service Loan Forgiveness Program that were published on October 23, 2008 by the Department of Education at:http://www.ed.gov/legislation/FedRegister/finrule/2008-4/102308a.html.

Table of Conversion Rates for 10-Year Repayment Schedule
Interest
Rate
Conversion
Rate
3% 0.009656
3.5% 0.009891
4% 0.010125
4.5% 0.010360
5% 0.010607
5.5% 0.010842
6% 0.011102
6.5% 0.011337
6.8% 0.011509
7% 0.011611
7.5% 0.011846
8% 0.012133
8.5% 0.012399
9% 0.012668
9.5% 0.012947
10% 0.013226
10.5% 0.013505
11% 0.013784
11.5% 0.014063
12% 0.014347
12.5% 0.014626
13% 0.014905
13.5% 0.015184
14% 0.015527
Sample calculation:
The below example shows a medical student borrowing $34,000 in Subsidized Stafford Loans ($8,500 per each year of medical school) at 4 percent interest as well as $100,000 in Unsubsidized Stafford Loan ($25,000 each year) and $10,000 in Perkins Loans at the 5 fixed percent interest. The following are the monthly payments for a ten-year period, calculated as follows:
$10,000 (Federal Perkins Loan) at 5% $10,000 × .010607 = $106.07
$34,000 (Subsidized Stafford) at 4% $34,000 × .010125 = $344.25
$100,000 (Unsubsidized Stafford) at 4% $100,000 × .010125 = $1,012.50
Total Est. monthly payment $1,462.82

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